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Target Corporation Earnings: Slow but Steady Growth

Target(NYSE:TGT) posted third quarter results this week. And like its larger retail rival Wal-Mart(NYSE:WMT) did earlier in the week, Target announced sales growth figures that were powered by rising customer traffic trends.

Here's how the results stacked up against the prior-year period:

The raw numbers

Q3 2015 Actuals

Q3 2014 Actuals

YoY Growth

Revenue

$17.6 billion

$17.3 billion

2%

Net Income

$549 million

$352 million

56%

EPS

$0.88

$0.55

59%

Source: Target financial filings

What happened with Target this quarter?Target logged encouraging improvements in comparable-store sales, profitability, and e-commerce sales. However, the pace of each of those gains slowed down when compared to the second quarter.

Comps rose 1.9%, which was at the high end of management's 1% to 2% guidance from August. It was also slightly above Wal-Mart's 1.5% comps improvement.

Earnings spiked higher due to residual effects from Target's failed expansion into the Canadian market. That closure removed $174 million from the prior year period's net income but resulted in a $73 million tax benefit this year.

The company spent $942 million buying back its stock, bringing its repurchase spending up to $2.2 billion so far this year, compared to zero repurchases in the same period of 2014.

Target's Black Friday deals. Image source: Target

What management had to say"We're pleased with our third quarter financial results, as both sales and adjusted earnings per share were near the upper end of our expectations," CEO Brian Cornell said. "The third quarter marked the fourth consecutive quarter in which we have grown traffic, and Target's sales growth continues to be led by our signature categories."

Meanwhile, executives are working hard to prepare for the biggest six weeks of the year: the holiday shopping season. "Our team is focused on strong execution throughout the holidays, and we are confident in our merchandising and marketing plans as we enter the most critical season of the year," Cornell said.

Looking forwardTarget said it expects to earn $1.53 per share in the fourth quarter, up from the $1.49 per share it booked last year. It also raised the lower end of its full-year profit forecast range to $4.65 per share from $4.60.

With comps trending below 2% so far this year, the retailer's business isn't surging as we head into the holidays. But the operations are showing steady enough gains that executives are claiming more confidence in the business. "Our momentum is encouraging, especially in the face of stiffer prior-year comparisons," Cornell said.